IG Markets - Morning Prices Jan 29

The S&P 500 was little changed heading into the close, after
finishing above 1500 for the first time since 2007 on Friday
night.

If the S&P 500 does close lower, it will end its
longest rally since 2004. It is currently trading at 1501
points, down 0.1%.

With this bullish sentiment, there are
some warning signs that we could be looking at a topping
market. There is still quite a lot of ‘wait-and-see’
going on, and the RSI indicator is now at 80, suggesting the
market is overweight.

We have been harping on about this
for weeks - yield-hunters and defensive plays are winning
the battle over risk assets, and that gives us a reason to
pause. If we are going to ride the bull market of 2013,
additional levers will be needed to see investors jumping in
and riding the wave.

One positive thing we are starting
to see for the continuation of the bull-run is: one of the
last safe-haven assets, US- treasuries, are staring to
unwind. Over the last few months, we have witness safe-haven
currencies unwinding, with the pound, the yen and the dollar
all devaluing. Now we are seeing some funds being release
from bonds, with 10-year treasuries yields rising to 2%. We
do understand that on the other side of the trade is the
Fed, and we never fight the Fed (It is continuing to buy $85
billion worth of mortgage-backed securities every month).
However, the flow out of bonds and into equity funds, (not
directly into shares) is adding weigh to the idea that
investors are now fearful of missing out and not just
fearful.

Moving to our region, and over the weekend the
yen appreciated after Japan’s Economy Minister Akira Amari
denied that his government is ‘interfering’ with the
country’s currency. Both Germany and Canada have both
voiced concern over Japanese attempts to devalue the yen.
Both counties have accused the Japanese of meddling with the
free market, something Japan denies. This was enough to see
the yen strengthen, with USD/JPY rising 0.13% to 90.79 and
saw the Nikkei fall 0.94% to 10,824 points in yesterday’s
trade. However, most other Asian markets were up, which is a
good sign for us.

Looking to our currency, AUD/USD
continues to unwind, dropping an additional 0.12%, and finds
itself well below $1.05. Currency traders continue to turn
to EUR/USD or EUR/JPY, as LTRO repayment receipts due on the
weekend came in ahead of expectations and left the Aussie
dollar out in the cold. AUD/USD is currently
$1.0457

Although the currency is fading, the local market
continues to outperform. Since the start of the year the
market has risen 12 out of the last 17 trading days, and has
advanced every day over the last eight days. Our market has
continued to hold its own when regional markets have pushed
lower. This adds to the idea that investors are starting to
look at the ASX with a bit more excitement rather than the
dread we saw over the past three years, with the market
having traded completely sideways. The fear trade looks well
and truly over, with the market now up 21.3% since the June
low last year; what we are careful of is a possible
pull-back. However, that isn’t expected to be
today.

Moving to the open and we are calling the ASX 200
up 29 points to 4864 points. The strong upward move can be
contributed to the rise in the S&P futures. Since Friday
night the futures market is up 0.6%, and we are now playing
catch up. We expect the market to continue to move north
today, making it the ninth straight up day. We are expecting
a flat start for BHP, with its ADR pointing up 0.14% to
37.15, after base metals slid overnight. Looking to the rest
of the week, and the market will be eagerly awaiting the
second quarter results of Wesfarmers and Woolworths. These
results are a good indicator of Christmas sales and consumer
sentiment. They also give a guide as to how inflation in
food is tracking, with 80% of the Australian food
consumption market covered by Coles or Woolworths.

IG Markets provides
round-the-clock CFD trading on currencies, indices and
commodities. The levels quoted in this email are the latest
tradeable price for each market. The net change for each
market is referenced from the corresponding tradeable level
at yesterday’s close of the ASX. These levels are
specifically tailored for the Australian trader and take
into account the 24hr nature of global markets.

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